Texas Republican Ron Paul takes stand for congressional Fed oversight

But if Bernanke is lucky, he and ‘crackpot-in-residence’ could end up looking like the best of pals

by Darrell Delamaide

Thu 16 Dec 2010

If Federal Reserve chairman Ben Bernanke has found Capitol Hill somewhat hostile in the past, he can now look forward to two years of unremitting scrutiny after one of the central bank’s harshest critics was chosen as chairman of the congressional panel overseeing the Fed.

Texas Republican Ron Paul, who published a book entitled End the Fed last year, was selected by House Financial Services Committee chairman-designate Spencer Bachus to head the Subcommittee on Monetary Policy. Paul has served in Congress on and off since 1976, with an uninterrupted stint since 1997, but is viewed as a loose cannon even by his Republican colleagues.

Paul’s political stance is, in many ways, not so much old-fashioned, more outright antediluvian. Yet during the financial crisis, he succeeded – much in the way that a stopped clock is right twice a day – in capturing the mood of the moment. A bill he introduced last year to audit the Fed won some 320 co-sponsors. Parts of it made their way into the financial reform bill signed into law in July.

Paul, a physician who once ran for president on the Libertarian Party ticket, has become an icon of the Tea Party movement because of his passion for reducing the size of government. His son Rand, also a doctor, won a Senate seat from Kentucky in last month’s election.

The senior Paul’s accession to a position of responsibility in the new Congress that will convene in January comes after the Republican Party has moved much more to the Right. Additionally, the passage of time has smoothed some of the 75-year-old Paul’s rough edges. His bill, after all, did not seek to abolish the Fed, but merely to make it more accountable – an objective that won wide support on both sides of the aisle.

But the prospect of Paul brandishing subpoena power in confrontations with the Fed has already raised concerns about its independence. Republican lawmakers have hinted at the possibility of stripping the Fed of its dual mandate to promote employment and price stability- so that it can focus exclusively on prices.

Some commentators are already speculating that political intimidation will block any further stimulative efforts by the Fed and will encourage inflation hawks on the Federal Open Market Committee to resist Bernanke’s easy money policy.

Part of Paul’s new-found respectability derives from his gritty integrity. His profound libertarianism prompted him, for instance, to welcome the recent disclosures from Wikileaks about US foreign policy even as fellow conservatives were vociferously demanding the execution of those responsible. Paul also marched to his own drummer when he said, as a candidate for the Republican presidential primary in 2007, that American foreign policy was partly to blame for provoking the 9/11 attacks.

Paul commands something of a cult following nationwide. He astounded his rivals during the 2007 campaign by raising more than $4m in contributions on a single day, largely through the internet.

Still, his devotion to Friedrich von Hayek and other Austrian School economists, his insistence on a return to the gold standard, and, well, his deep-felt belief that the US central bank should in fact be abolished make him in many ways crackpot-in-residence on Capitol Hill.

Paul wasted no time after his designation last week pledging to hold a series of hearings on monetary policy and to seek a full audit of the Fed.

However, Bernanke has proven resilient in dealing with Congress. Loud calls to strip the Fed of its regulatory functions for its ‘failure’ to prevent the crisis came to nothing. In fact, the Dodd-Frank Act strengthens the Fed’s regulatory powers.

The Fed chairman no doubt expects much of the criticism to lose its sting when economic recovery finally takes hold. That could marginalise Paul again, in spite of his new bully-pulpit. If all goes well for Bernanke, by the end of 2011 he and Paul could end up – against all the odds – looking like the best of pals.

Darrell Delamaide is a member of the OMFIF Board of Contributing Editors.